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Shill bidding occurs at auctions all over the world every day. Is it a widespread occurrence? I would guess not, but it’s not hard to find. No type of auction is exempt — live, online, live and online, silent, sealed bid, or other.
So what is shill bidding?
Let’s look first at the word, “shill.” Shill means basically to falsely advocate a position in attempts to entice others do follow that lead. For example, Robert opens a music store in Seattle, Washington and Robert enlists his friends and family to blog about how wonderful the service is at this new music store — even though none have even set foot in Robert’s new store.
In our example, here, Robert could himself author testimonials of good service at his own store, but under the disguise of some other name or identity. Therefore, Robert could himself shill on behalf of his own music store.
Now let’s look at the word, “bidding.” Bidding at an auction is the act of communicating an offer to purchase subject property at an auction. People can bid at a live auction, online auction, silent auction or sealed bid auction where the auctioneer invites offers, and the bidders then typically bid accordingly, per the invitation the auctioneer is suggesting.
For example, Vern the auctioneer announces, “Folks, we have this wonderful old trombone, and I’d like a bid of $200.” Bidders have the choice of agreeing to this $200 (thus offering $200) and the auctioneer typically accepting the $200 and then inviting a bid for more, or communicating another offer to the auctioneer, such as, “I’ll give you $50,” where the auctioneer can accept or reject the offer.
Shill bidding then would involve falsely advocating a position in attempts to entice others do follow that lead by bidding at an auction. In other words, Frank is selling his prized 1920’s trumpet and enlists his son to bid on the trumpet to give the impression others should also bid on the trumpet, and ensure it doesn’t sell below what Frank desires to receive.
What shill bidding involves is bidding without the genuine intent to purchase, and rather with the intent to ensure price protection for the seller by one of two methods:
- The shill bids and if the bidding only reaches an amount less than Frank is willing to accept, the shill buys the item, and would then typically pay for the item and return the item to Frank, who would reimburse the shill for his purchase.
- The shill bids with the intent of influencing others to bid, hoping others see his level of interest in the item, and gauge value based upon his bidding. In this scheme, the hope is that if the shill bids an amount, the other interested bidders sense one more higher bid as reasonable.
In practice, shill bidding typically involves a combination of these two methods because, of course, when the shill bids there is the inherent risk no other bids are made, thus requiring the shill to purchase the property, even if the scheme is put in place to influence others to bid higher than the shill.
First, in any forced sale situation, where property is being sold without the seller’s consent, the seller or someone acting on behalf of the seller, may bid.
Otherwise, in a with reserve auction, the seller may bid if that right has been reserved (if the other bidders have knowledge). However, at a without reserve auction, the seller nor someone acting on behalf of the seller may bid.
What are the implications of shill bidding?
For honest auction participants — both buyers and sellers — shill bidding damages the auction process by instilling distrust in the practice. Buyers may avoid auctions where they believe shill bidding is tolerated. Sellers may find lower prices where their items are sold at auctions which potential bidders are avoiding.
Too, auction buyers pay artificially inflated prices by either basing their bids on shill bidders, and/or being pushed by shill bidders to pay more.
For the shill bidder, the consequences can range from being barred from participating in auctions, to civil and and even criminal charges; fines alone to-date have been as high as $400,000 for shill bidding. Most every case of shill bidding resulting in civil charges has involved some type of online auction, where the identity of the bidders is more easily concealed.
Shill bidding is a crime and auctioneers need to do everything they can to help eliminate it from the auction industry.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.